US consumer spending fell for the first time in two years in September as the weakening economy prompted the biggest decline in Americans’ confidence in at least three decades and reduced their ability to finance the purchase of goods and services.

The 0.3 per cent decrease in consumer spending in September was the biggest decline in three and a half years and came after two consecutive months of flat expenditure, according to new figures from the Commerce Department.

Weak spending looks set to continue as separate data indicated that consumer confidence recorded its biggest decline in October since monthly data began in 1978.

The Reuters/University of Michigan index of consumers sentiment dropped from 70.3 in September to 57.6 in October. The measure, in which the larger the number. the greater the confidence, averaged 85.6 last year.

In a further dose of gloomy economic news, the Institute for Supply Management-Chicago reported that its index — a gauge of employment and demand — fell from 56.7 in September to 37.8 in October.

Josh Shapiro, chief economist at MFR, said: "A consumer-led recession is upon us, and it promises to be a serious one."

"The US consumer is in major trouble, with wage and salary income growth evaporating, credit extremely tight or unavailable, home prices continuing to decline, household balance sheets stressed, and food and energy costs consuming a large share of budgets", he added.

The grim economic data was released a day after new figures showed the US economy was on the brink of officially entering recession, following the first decline of 0.3 per cent in the third quarter in America’s gross domestic product since the aftermath of the September 11 terrorist attacks.

A technical recession is generally regarded as two consecutive quarters of declining GDP.

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